Mats Persson is Director of Open Europe, a think-tank with offices in London and Brussels, and an advisory board member of Open Europe Berlin.

Even for 'good Europeans' like Angela Merkel, defending national interests is king

“Merkel lobbies to shield German automakers from emissions rules” read a headline in today’s papers. EU leaders are meeting today and tomorrow for their quarterly summit. Though rules around how banks should take losses have dominated, EU leaders were also meant to sign off an agreement on new emission rules for cars (specifically binding rules for auto manufacturers stating that by 2012 they need to reduce their cars’ average emissions to 95 grams of carbon dioxide per kilometre).

That didn’t sit well with She Who Decides. Last night, German Chancellor Angela Merkel apparently hit the phone, urging fellow EU leaders to drop the deal. The German car sector – whose exports are a key driver of the country’s economic growth – didn’t like the new rules. We hear from Germany that Merkel might have been successful – the rules won’t be discussed at the meeting.

Once the German elections (due in September) are behind us, the rules may pass anyway, but there’s a wider point here. In the headline above, replace “Merkel” for “Cameron”, “German” for “British”, “automakers” for “bankers” and “emissions” for “financial regulation”. Germany accounts for roughly 60 per cent of Europe’s car exports, while the UK accounts for around 61 per cent of the EU’s net exports of international transactions in financial services. Both industries provide billions in tax revenue every year.

While the sectors might not be directly comparable, I think it’s fair to say we’re talking about comparable national interests.

Now, if it were Cameron going to war over the City, the media would run with two stories. First, "Cameron seeks to protect greedy bankers". Second, "the UK is isolated".

But somehow, the same narrative never quite applies to German car manufacturers (who can hardly claim the moral high ground – climate change and all that – though I rate German cars as much as the next man of course). A few points:

First, as I’ve argued before, for all the talk about “good” and “bad” Europeans, the national interest remains king in Europe. It’s all about how you frame the issue. It’s clear that Merkel has leveraged her (sizeable) power base in Europe when and where it is needed. Secondly, it’s clear that the UK has a big image problem in the EU – unlike Merkel’s attempt to let her car manufacturers off the hook on emissions rules, Cameron has actually sought to impose stricter requirements on British bankers than the EU norm (under capital requirements rules). But the UK has done a terrible job of translating that into public diplomacy.

Finally, if the German car manufacturing industry is vulnerable to EU rules, consider UK financial services. Almost all financial services rules in the EU are decided by so-called Qualified Majority Voting (QMV). The graph below shows how ridiculously skewed the system is against the UK, if comparing voting weight to share of the market.

Deciding financial rules by QMV is not all bad as it has helped to open up markets for exporting UK financial firms. But the trade-off between market access and control only works as long as the UK has reasonable influence over the rules of the game.